U.K. games companies up for sale

Argonaut and Eidos find the going gets tough

By

MadeleineAcey

LONDON (CBS.MW) -- Argonaut Games this week became the second major computer games company in Britain to seek a buyer.

Known for its Harry Potter games, Argonaut (AGT) on Monday said it asked independent administrators to look at selling its studios. Its shares have been suspended on the London Stock Exchange since Oct. 15, after warning it was running out of cash.

Argonaut's forced sale comes a week after Eidos (EID), the publisher of the TombRaider games, said it was seeking a buyer and had delayed the release of a second game, Championship Manager.

But Nick Parker, games industry analyst of Parker Consulting, said the companies' woes did not represent an industry problem. "They are two different businesses; this is not a reflection of the market," he said.

Argonaut

Parker said Argonaut had high development costs, plus problems finding publishers for some of its games. Also, retailers were concentrating on a narrower range of current top hits even as more games compete for shelf space.

"The World War II genre has been growing, for example. And if certain genres are selling well, the retailers will concentrate on that. They won't go for the less tried and tested games," Parker said.

"Creativity is not coming to the fore anymore."

In August, Argonaut warned that performance for the year would not meet expectations because of delays in signing major development contracts before July 31, the company's fiscal year-end. Last week it said further delays in signing the contracts meant it had less cash than it anticipated and could probably not stay in business for long.

"Interest has already been expressed and the administrators are confident that an early sale can be finalized," the administrators David Rubin and Partners said Monday.

Margaret Robertson, games editor at Edge magazine, said Argonaut had struggled with its game lineup over the last few years. "Their most notable failure has been Malice, a game which was originally supposed to be an Xbox launch title. It was finally released early this year, but was of very patchy quality and was released at a budget price."

"Other games, such as I-Ninja, Powerdrome and Kung-Fu Chaos, were much better," Robertson said. "They had strong new ideas and distinctive styles, but they failed to appeal to a wide enough audience. Unfortunately, it's maybe precisely because they had strong new ideas and distinctive styles that they struggled so hard - the games market is in a particularly conservative mood at the moment."

She also backed Parker's view that others in the industry were doing well.

Eidos

In September Eidos reported a loss for the year on falling sales, blaming softness in the market, "particularly in the U.S." It then also delayed the release of its ShellShock: Nam '67 game.

Parker noted that the company is a publisher rather than a developer like Argonaut and each has been affected by different events. Further, investors are tough these days on small companies, especially in the creative businesses, he said.

"The games industry is a business very much based on start dates and end-of-development-dates, it's a creative industry yet every time the companies say there will be a bit of slippage into the next quarter, then a profit warning has to go out," he said.

The games business is a "hit driven industry," he said, like the movie business, and Eidos did not have new releases of its flagship games -- such as TombRaider or Timesplitter -- this year.

"A lot of Eidos' problems are based on the expectations of outsiders," Parker said. "It's not a question of the market. We're going to have a record Christmas season this Christmas -- in hardware and software sales."

"There's a PlayStation launch on Nov. 1 that looks really gorgeous and the Xbox Crystal
MSFT, +1.57%
version at 99 pounds is selling well. Demand isn't drying up or anything like that.

"The volume and value of software sales has seen consistent growth since 1995. Some companies just haven't got the titles," he said.

Robertson noted that some British games companies were doing well and concluded that across the games industry there was a trend for consolidation.

"Big Blue Box, a studio operating under the Lionhead umbrella, has just produced the fastest selling Xbox game ever," she said. "Criterion, makers of the game development toolset Renderware and the extremely successful Burnout series have just been very profitably bought by EA."

"As gaming becomes bigger business, and as the costs associated with not only development, but also licensing and advertising, grow, it's getting harder for independents to flourish wherever they are in the world," Robertson said. "There's no question that a number of U.K. game houses have fallen foul of that global trend."

Companies reported to be interested in buying Eidos include France's Infogames Entertainments, which owns the Atari brand, and Ubi Soft Entertainment, although the latter was reported to have abandoned its bid in August because Eidos' market capitalization -- 115 million pounds -- was considered too high, AFX reported.

An Eidos spokeswoman said the company was unable to comment while it was in an offer period.

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